Performance based auto loans

ABSTRACT

Disclosed are systems and methods for providing a loan having an interest rate and a loan period. The systems and methods dynamically adjust the interest rate during the loan period based on actual payment performance of a borrower, thereby resulting in an improved reward structure, greater borrower loyalty and an improved experience for the borrower.

CROSS REFERENCE TO RELATED APPLICATIONS

This application claims priority to U.S. patent application Ser. No.11/321,969, filed Dec. 29, 2005, the disclosure of which is incorporatedherein by reference in its entirety.

This application is related to U.S. patent application Ser. No.11/413,552, filed concurrently herewith, the disclosure of which isincorporated herein by reference in its entirety.

TECHNICAL FIELD

Various embodiments of the present disclosure pertain to informationhandling systems used in finance and banking applications and moreparticularly, to providing consumer lending products and services thatoffer an improved customer experience.

BACKGROUND

With interest rates at historic lows, consumer borrowing has beensteadily growing. Consumers have been borrowing money from financiallending institutions fOr everything ranging from automobiles, to dreamvacations and multi-million dollar homes. A consumer may typically applyfor a loan via the Internet, and often within minutes obtain an approvalfor the loan. One or more financial lending institutions may competeon-line by providing attractive upfront incentives for the loan. Mostfinancial lending institutions decide on the loan application, virtuallyinstantly, by primarily evaluating applicant's credit history asdetermined by their overall credit score. It is well known that thecredit score is a numeric assessment made by independent creditreporting companies such as Equifax, Experian and TransUnion, which isused to evaluate the amount of ‘financial risk’ involved in a credittransaction.

Applicants having less than acceptable credit score are often classifiedas high risk borrowers, who often pay a higher interest rate over longerloan duration. A threshold for a minimum acceptable credit score may bedetermined by each financial lending institution. The practice ofoffering borrowers loans at rates that are higher than warranted by thecredit history of the borrower is sometimes referred to as predatorylending. While past credit history and credit score may be a goodindicator of future financial performance, an applicant having a lessthan acceptable credit score but desirous to improve the credit scoremay become a victim of predatory lending by being locked into paying thehigher interest rate for the entire duration of the loan. Existingcustomers or members of a financial lending institution may have littleor no incentive to maintain loyalty since other competing financiallending institutions are likely to offer seemingly lucrative upfrontincentives to seek new customers for refinancing and/or loan transfers.

Accordingly, it would be desirable to provide a consumer loan having abuilt-in incentive structure to reward actual performance and maintaincustomer loyalty, absent the disadvantages found in the prior methodsdiscussed above.

SUMMARY

Various embodiments of the present disclosure are directed to systemsand methods for providing a loan having an interest rate and a loanperiod. The systems and methods dynamically adjust the interest rateduring the loan period based on actual payment performance of aborrower, thereby resulting in an improved reward structure, greaterborrower loyalty and an improved experience for the borrower.

In one aspect of the disclosure, the interest rate is dynamicallyadjusted during the loan period responsive to a change in a credit scoreof the borrower. The credit score may be derived internally by afinancial lending institution and/or may be reported by an independentcredit reporting company.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1A is a block diagram illustrating an embodiment of a system.

FIG. 1B is a block diagram illustrating an embodiment of arepresentative information handling system used in the system of FIG.1A.

FIG. 2 is a block diagram illustrating a loan transaction system,according to an embodiment.

FIG. 3 is a flow chart illustrating a method for providing a loan havingan interest rate and a loan period, according to an embodiment.

DETAILED DESCRIPTION

Referring now to FIG. 1A, in one embodiment, a system for financiallending 100 is illustrated. The system 100 includes a computer network105 such as, for example, a Transport Control Protocol/Internet Protocol(TCP/IP) network (e.g., the Internet and/or an intranet). A financiallending institution or a provider 110 is operably coupled to the network105. Examples of a provider 110 may include a bank, a credit union, aninsurance company, a financial investment company, a credit card issuer,a credit issuing division of a capital goods manufacturer, abroker/agent, and similar others. A plurality of users 115, 120, and 125are also operably coupled to the network 105 in order to allowcommunication between the users 115, 120, and 125 and the provider 110.Examples of a user may include a borrower, a member of a financiallending institution, a credit counselor, a broker/agent, a potentialbuyer of a new loan, a researcher, and similar others.

In a particular embodiment, the system 100 is operable to processfinancial transactions between various entities such as between theprovider 110 and the user 115. A financial transaction generallyinvolves a change in the status of the financial resources of two ormore entities, such as businesses and/or individuals. For example, theuser 115 may initiate a loan transaction by completing an on-line loanapplication at the provider's web site. After collecting loanapplication information from the user 115, the provider 115 may look upa credit score rating for the user 115 and determine whether to approveor disapprove the loan application submitted by the user 115. Onapproval and signing of a loan agreement using secure digitalsignatures, the provider 110 may electronically transfer the loan amountto a bank account of the user 115. The user 115 may electronicallytransfer funds out of a specified bank account to the provider 110 asmonthly payments.

Each of the provider 110 and the users 115, 120, and 125 includes arespective network interface for communicating with the network 105(e.g., outputting information to, and receiving information from, thenetwork 105), such as by transferring information (e.g., instructions,data, signals) between such users and the network 105. Accordingly,through the network 105, the provider 110 communicates with the users115, 120, and 125, and the users 115, 120, and 125 communicate with theprovider 110.

For clarity, FIG. 1A depicts only one provider 110. However, the system100 may include a plurality of providers. Likewise, for clarity, FIG. 1Adepicts only three users 115, 120, and 125. However, the system 100 mayinclude a plurality of users. In the discussion below, the user 115 is arepresentative one of the users 115, 120, and 125.

Each of the provider 110 and the users 115, 120, and 125 includes arespective information handling system (IHS), a subsystem, or a part ofa subsystem for executing processes and performing operations (e.g.,processing or communicating information) in response thereto, asdiscussed further below. Each such IHS is formed by various electroniccircuitry components. Moreover, as illustrated in FIG. 1A, such IHS'smay be coupled to each other. Accordingly, the provider 110 and theusers 115, 120, and 125 operate within the network 105.

An IHS is an electronic device capable of processing, executing orotherwise handling information. Examples of an IHS include a servercomputer, a personal computer (e.g., a desktop computer or a portablecomputer such as, for example, a laptop computer), or a handheldcomputer. Examples of an IHS also include a router, a switch and otherdevices coupled to a network (e.g. the network 105).

Referring now to FIG. 1B, an IHS 130 which is representative of one ofthe IHS's described above, is illustrated. The IHS 130 may include anyor all of the following: (a) a processor 130 a for executing andotherwise processing instructions, (b) a plurality of input devices 130b, which are operably coupled to the processor 130 a, for inputtinginformation, (c) a display device 130 c (e.g., a conventional electroniccathode ray tub (CRT) device or a conventional liquid crystal display(LCD)), which is operably coupled to the processor 130 a, for displayinginformation, (d) a print device 130 d (e.g. a conventional electronicprinter or plotter), which is operably coupled to the processor 130 a,for printing visual images (e.g., textual or graphic information onpaper), (e) a computer readable medium 130 e, which is operably coupledto the processor 130 a, for storing information, as discussed furtherbelow, and (f) various other electronic circuitry for performing otheroperations of the IHS 130 known in the art.

For example, the IHS 130 includes (a) a network interface (e.g.,circuitry) for communicating between the processor 130 a and the network105 and (b) a memory device (e.g., random access memory (RAM) device orread only memory (ROM) device for storing information (e.g.,instructions executed by processor 130 a and data operated upon byprocessor 130 a in response to such instructions)). Accordingly theprocessor 130 a is operably coupled to the network 105, the inputdevices 130 b, the display device 130 c, the print device 130 d, and thecomputer readable medium 130 e, as illustrated in FIG. 1B.

For example, in response to signals from the processor 130 a, thedisplay device 130 c displays visual images. Information may be input tothe processor 130 a from the input devices 130 b, and the processor 130a may receive such information from the input devices 130 b. Also, inresponse to signals from the processor 130 a, the print device 130 dprints visual images on paper.

The input devices include a variety of input devices known in the artsuch as, for example, a conventional electronic keyboard and a pointingdevice such as, for example, a conventional electronic “mouse”,rollerball, or light pen. The keyboard may be operated to inputalphanumeric text information to the processor 130 a, and the processor130 a may receive such alphanumeric text information from the keyboard.The pointing device may be operated to input cursor-control informationto the processor 130 a, and the processor 130 a may receive such cursorcontrol information from the pointing device.

In an exemplary, non-depicted embodiment, the IHS 130 includes anoperating system (OS). The OS is a type of software program thatcontrols execution of other software programs, referred to asapplication software programs. Each software program includes aplurality of instructions executable by the processor 130 a. In variousembodiments the instructions and/or software programs may be implementedin various ways, including procedure-based techniques, component-basedtechniques, and/or object-oriented techniques, among others. Examplesinclude assembler, C, XML, C++ objects, Java and Microsoft's .NETtechnology.

The computer readable medium 130 e and the processor 130 a arestructurally and functionally interrelated with one another as describedbelow in further detail. Each IHS of the illustrative embodiment isstructurally and functionally interrelated with a respective computerreadable medium, similar to the manner in which the processor 130 a isstructurally and functionally interrelated with the computer readablemedium 130 e. In that regard, the computer readable medium 130 e is arepresentative one of such computer readable media including, forexample, but not limited to, a hard disk drive.

The computer readable medium 130 e stores (e.g., encodes, records, orembodies) functional descriptive material (e.g., including but notlimited to software (also referred to as computer programs orapplications) or data structures). Such functional descriptive materialimparts functionality when encoded on the computer readable medium 130e. Also, such functional descriptive material is structurally andfunctionally interrelated to the computer readable medium 130 e.

With such functional descriptive material, data structures definestructural and functional interrelationships between such datastructures and the computer readable medium 130 e (and other aspects ofthe system 100). Such interrelationships permit the data structures'functionality to be realized. Also, within such functional descriptivematerial, computer programs define structural and functionalinterrelationships between such computer programs and the computerreadable medium 130 e (and other aspects of the system 100). Suchinterrelationships permit the computer programs' functionality to berealized.

For example, the processor 130 a reads (e.g., accesses or copies) suchfunctional descriptive material from the computer readable medium 130 eonto the memory device of the IHS 130, and the IHS 130 (moreparticularly, the processor 130 a) performs its operations (as describedelsewhere herein) in response to such material which is stored in thememory device of the IHS 130. More particularly, the processor 130 aperforms the operation of processing a computer application (that isstored, encoded, recorded, or embodied on a computer readable medium)for causing the processor 130 a to perform additional operations (asdescribed elsewhere herein). Accordingly, such functional descriptivematerial exhibits a functional interrelationship with the way in whichprocessor 130 a executes its processes and performs its operations.

Further, the computer readable medium 130 e is an apparatus from whichthe computer application is accessible by the processor 130 a, and thecomputer application is processable by the processor 130 a for causingthe processor 130 a to perform such additional operations. In additionto reading such functional descriptive material from the computerreadable medium 130 e, the processor 130 a is capable of reading suchfunctional descriptive material from (or through) the network 105 whichis also a computer readable medium (or apparatus). Moreover, the memorydevice of the IHS 130 is itself a computer readable medium (orapparatus).

FIG. 2 is a block diagram illustrating a loan transaction processingsystem 200, according to an embodiment. In the depicted embodiment, thetransaction system 200 includes a lender 210 such as a financial lendinginstitution having financial resources to provide a loan 220 to aborrower 230. In an exemplary, non-depicted embodiment, the system 200may include a plurality of lenders and borrowers. In a particularembodiment, the lender 210 is substantially the same as the provider 110and the borrower 230 is substantially the same as the user 115 describedwith reference to FIG. 1A. In this embodiment, the lender 210 is coupledto the borrower 230 via the network 105. At least a portion of thefinancial transactions between the lender 210 and the borrower 230 suchas the loan 220 take place electronically via the network 105.

In a particular embodiment, the loan 220 is at least one of anautomobile loan, a personal loan, a home equity loan, a loan on a creditcard, an educational loan and/or a combination thereof. The loan 220 maybe set up as an explicit or an implicit agreement between the lender 210and the borrower 230. In a loan transaction, in response to a requestfor a loan by the borrower 230, an advance of funds known as a loanamount 222 (or a principal amount) is transferred from the lender 210 tothe borrower 230. As a part of the agreement, the borrower 230 agrees topay back the lender 210, the loan amount 222 with interest over anagreed upon time period. An agreed upon interest rate 224 for the loan220 and an agreed upon loan period 226 define a monthly or periodicpayment amount. That is, the borrower 230 pays back the loan 220 overthe loan period 226 by making a plurality of payments 240 on or before aseries of predefined dates and/or time periods, where each of theplurality of payments 240 shown as payment #1 242, payment #2 244 andpayment #n 248 include a principal portion and an interest portion.

In the depicted embodiment, the lender 210 initially sets the interestrate 224 for the loan 220 in response to receiving a credit score 250for the borrower 230. In a particular embodiment, the borrower 230 is ahigh risk borrower having the credit score 250 below a predefinedthreshold. The lender 210 may define a particular value for the creditscore 250 as a minimum threshold. To cover the higher risks associatedwith the high risk borrower, the lender 210 increases the interest rate224 and/or increases the loan period 226. In a particular embodiment,the credit score 250 is received from a third party, independent creditreporting/monitoring bureau such as Equifax, Experian and TransUnioncompanies. In another embodiment, the credit score 250 may be derivedinternally by the lender 210 based on information provided by anexisting member and/or borrower.

In a particular embodiment, the interest rate 224 is adjustable by thelender 210 in response to the borrower's desirable financial conductsuch as a payment performance of the borrower 230 measured over anadjustable time period such as 12 months. During the adjustable timeperiod, the borrower 230 pays at least n number of the plurality ofpayments 240, where n is the adjustable time period. In a particularembodiment, the adjustable time period n is adjustable from at least 6months up to a maximum period not exceeding the loan period 226. Thelender 210 monitors payments received over the adjustable time periodfor on time performance. If each payment included in the plurality ofpayments 240 is received in a timely manner during the adjustable timeperiod, then the lender 210 dynamically adjusts the interest rate 224 toreward the borrower's performance. In a particular embodiment, theinterest rate 224 is adjustable after the expiration of the adjustabletime period by reducing the interest rate 224 by a predefined amount.The reduction in the interest rate 224 may result in reducing the loanperiod 226 while maintaining the same payment amount.

In an embodiment, the lender 210 may adjust the interest rate 224multiple times during the loan period 226 by defining multipleadjustable time periods for evaluating payment performance. For example,the lender 210 may adjust the interest rate 224 every 12 months during a60 month loan period based on payment performance.

By providing an ability to lower the interest rate 224 during the loanperiod 226 the lender 210 provides an incentive to the borrower 230 tomaintain loyalty. In a particular embodiment, the interest rate 224 isadjustable during the loan period 226 responsive to a change in thecredit score 250 of the borrower 230. That is, in addition to rewardingthe borrowers desirable financial conduct as measured by the timelypayment performance of the borrower 230, the lender 210 may furtherreduce the interest rate 224 in response to an increase in the creditscore 250 of the borrower 230. Also, it should be appreciated that anadjustment to the loan 220 may be made on any number of borrower 230activities, including for example timeliness on other accounts, minimumbalance, or other good financial conduct.

In an embodiment, the adjustment to the interest rate 224 during theloan period 226 may be expressed as a predefined function of theborrower's performance as measured by parameters such as number ofconsecutive payments paid on a timely basis and an increase in thecredit score 250 compared to the threshold and similar others.

FIG. 3 is a flow chart illustrating a method for providing a loan havingan interest rate and a loan period, according to an embodiment. In aparticular embodiment, the loan is substantially the same as the loan220 described with reference to FIG. 2. In an embodiment, the method forproviding the loan is implemented using the system 100 and the computerreadable medium 130 e described with reference to FIGS. 1A and 1B.

In step 310, a plurality of payments are received from a borrower duringan adjustable time period of the loan period. As described earlier, in aparticular embodiment, the adjustable time period is adjustable from atleast 6 months up to a maximum period not exceeding the loan period. Instep 320, a determination is made whether each one of the plurality ofpayments is received in a timely manner, e.g., on or before a predefineddue date. In step 330, in response to determining that the plurality ofpayments received during the adjustable time period are received in atimely manner, the interest rate is adjusted after the expiration of theadjustable time period.

Various steps described above may be added, omitted, combined, altered,or performed in different orders. For example, in a particularembodiment, the step 340 may be added to further adjust the interestrate. In step 340, the interest rate is adjusted in response toreceiving a new value for the credit score of the borrower.

Although illustrative embodiments have been shown and described, a widerange of modification, change and substitution is contemplated in theforegoing disclosure and in some instances, some features of theembodiments may be employed without a corresponding use of otherfeatures. Those of ordinary skill in the art will appreciate that thehardware, software and methods illustrated herein may vary depending onthe implementation. For example, it should be understood that while thevarious incentives describe a reduction in interest rate, it would bewithin the spirit and scope of the invention to encompass an embodimentdeploying other forms of incentives such as membership reward points,e.g., points that may be redeemable to purchase merchandise or airlinetickets, and/or membership fee waivers to reward payment performanceduring the loan period.

The methods and systems described herein provide for an adaptableimplementation. Although certain embodiments have been described usingspecific examples, it will be apparent to those skilled in the art thatthe invention is not limited to these few examples. The benefits,advantages, solutions to problems, and any element(s) that may cause anybenefit, advantage, or solution to occur or become more pronounced arenot to be construed as a critical, required, or an essential feature orelement of the present disclosure.

The above disclosed subject matter is to be considered illustrative, andnot restrictive, and the appended claims are intended to cover all suchmodifications, enhancements, and other embodiments which fall within thetrue spirit and scope of the present invention. Thus, to the maximumextent allowed by law, the scope of the present invention is to bedetermined by the broadest permissible interpretation of the followingclaims and their equivalents, and shall not be restricted or limited bythe foregoing detailed description.

1. A system for providing a loan, the system comprising at least onesubsystem operating on a machine for: providing a loan from a lender toa borrower, wherein the loan comprises a loan period and an interestrate; receiving a plurality of first payments from the borrower for theloan according to the interest rate comprising a first interest ratewherein the plurality of first payments are received during anadjustable time period of the loan period; adjusting the interest rateof the loan after the adjustable time period, in response to theborrower's desirable financial conduct with respect to the lender duringthe adjustable time period, such that the interest rate comprises asecond interest rate that is lower than the first interest rate; andreceiving at least one second payment from the borrower for the loanaccording to the second interest rate.
 2. The system of claim 1, whereinthe borrower's desirable financial conduct with respect to the lendercomprises providing the plurality of first payments for the loan duringthe adjustable time period such that each of the plurality of firstpayments for the loan are determined to have been received on timeduring the adjustable time period.
 3. The system of claim 1, wherein theborrower's desirable financial conduct with respect to the lendercomprises timeliness on one or more other accounts with the lender. 4.The system of claim 1, wherein the loan is selected from the groupconsisting of an automobile loan, a personal loan, a home equity loan, acredit card loan, an educational loan, and combinations thereof.
 5. Thesystem of claim 1, wherein the adjusting comprises a plurality ofadjustments to the interest rate of the loan during the loan period. 6.The system of claim 1, further comprising at least one subsystem for:determining whether each of the plurality of first payments for the loanhave been received on time.
 7. The system of claim 1, further comprisingat least one subsystem for: providing the loan to the borrower.
 8. Acomputer-readable medium comprising computer-readable instructions forproviding a loan, said computer-readable instructions comprisinginstructions for: providing a loan from a lender to a borrower, whereinthe loan comprises a loan period and an interest rate; receiving aplurality of first payments from the borrower for the loan according tothe interest rate comprising a first interest rate, wherein theplurality of first payments are received during an adjustable timeperiod of the loan period; adjusting the interest rate of the loan afterthe adjustable time period, in response to the borrower's desirablefinancial conduct with respect to the lender during the adjustable timeperiod, such that the interest rate comprises a second interest ratethat is lower than the first interest rate; and receiving at least onesecond payment from the borrower for the loan according to the secondinterest rate.
 9. The computer-readable medium of claim 8, wherein theborrower's desirable financial conduct comprises providing the pluralityof first payments for the loan during the adjustable time period suchthat each of the plurality of first payments for the loan are determinedto have been received on time during the adjustable time period.
 10. Thecomputer-readable medium of claim 8, wherein the borrower's desirablefinancial conduct with respect to the lender comprises timeliness on oneor more other accounts with the lender.
 11. The computer-readable mediumof claim 8, wherein the loan is selected from the group consisting of anautomobile loan, a personal loan, a home equity loan, a credit cardloan, an educational loan, and combinations thereof.
 12. Thecomputer-readable medium of claim 8, wherein the adjusting comprises aplurality of adjustments to the interest rate of the loan during theloan period.
 13. The computer-readable medium of claim 8, furthercomprising computer-readable instructions comprising instructions for:determining whether each of the plurality of first payments for the loanhave been received on time.
 14. The computer-readable medium of claim 8,further comprising computer-readable instructions comprisinginstructions for: providing the loan to the borrower.
 15. A method forfinancial planning, the method comprising a machine for: providing aloan from a lender to a borrower, wherein the loan comprises a loanperiod and an interest rate; receiving a plurality of first paymentsfrom the borrower for the loan according to the interest rate comprisinga first interest rate, wherein the plurality of first payments arereceived during an adjustable time period of the loan period; adjustingthe interest rate of the loan after the adjustable time period, inresponse to the borrower's desirable financial conduct with respect tothe lender during the adjustable time period, such that the interestrate comprises a second interest rate that is lower than the firstinterest rate; and receiving at least one second payment from theborrower for the loan according to the second interest rate.
 16. Themethod of claim 15, wherein the borrower's desirable financial conductcomprises providing the plurality of first payments for the loan duringthe adjustable time period such that each of the plurality of firstpayments for the loan are determined to have been received on timeduring the adjustable time period.
 17. The method of claim 15, whereinthe borrower's desirable financial conduct with respect to the lendercomprises timeliness on one or more other accounts with the lender. 18.The method of claim 15, wherein the loan is selected from the groupconsisting of an automobile loan, a personal loan, a home equity loan, acredit card loan, an educational loan, and combinations thereof.
 19. Themethod of claim 15, wherein the adjusting comprises a plurality ofadjustments to the interest rate of the loan during the loan period. 20.The method of claim 15, further comprising: determining whether each ofthe plurality of first payments for the loan have been received on time.21. The method of claim 15, further comprising: providing the loan tothe borrower.